What to Do if You Cannot Pay Your Mortgage


What to Do if You Cannot Pay Your Mortgage

Americans continue to be hit with higher-than-average prices for a plethora of everyday, necessary goods and services. With this huge wave of inflation washing over the country, we shouldn’t be surprised to hear that many people are having trouble keeping up with all of their financial obligations – including their mortgage payments. If you’re suddenly unable to keep up with your mortgage payments, you need to know that you have options to address the situation. Here are 6 options for those who’ve become unable to handle their mortgage payments.


Option #1: Forbearance

Essentially, forbearance is a temporary pause which is placed on your mortgage loan, during which the borrower isn’t expected to make any payments. In other words, it is a form of temporary relief. Precisely how long a loan can be placed in forbearance, and the precise terms, vary from lender to lender, and so you’ll need to discuss the specifics of forbearance with your lender. One of the key features of forbearance is that interest accumulates as normal on the loan during the pause, which is one reason why forbearance is not the optimal option.


Option #2: Refinance

Depending on numerous variables, you might have the option of acquiring a new refinance loan. If you refinance your home, you can obtain a lower interest rate and end up with lower monthly payments. This new situation might be more financially manageable in difficult times. Typically, refinancing is ideal when you have at least 20% equity in your home because this will usually avoid the necessity of obtaining private mortgage insurance.


Option #3: Mortgage Modification

Mortgage modification occurs when the borrower negotiates with his or her lender to adjust the terms of the underlying loan. This is done with the express purpose of making the payments more manageable and avoiding the possibility of foreclosure. Although your monthly payments may be lowered, your loan is likely to be extended, and so it will take longer to pay it off than you would without the modification. This is the tradeoff, and so you need to take this into account when deciding on a modification.


Option #4: Rent Out the House

This might be an option for some people, and it can give you the opportunity to preserve the house while living in a separate place. Given the inventory issues in the housing market, there is a possibility that you might be able to rent your house at a monthly amount which exceeds your mortgage payment. You might even be able to swing a profit. Of course, the drawback here is that you’ll need to find other accommodations, and this involves all sorts of up-front costs (i.e. security deposit, first and last month’s rent, etc.). Also, becoming a landlord is not an easy proposition, as there are tons of considerations to deal with.


Option #5: Short Sale

You might consider a “short sale” depending on your circumstances. A short sale is essentially a settlement agreement with your lender, whereby the lender agrees to accept a lesser “short” amount than what is due and owing on your mortgage. Of course, the homeowner has to find a buyer and go through the process of getting the lower amount approved by the lender.  Furthermore, although you won’t be responsible for any deficiency judgment, certain jurisdictions consider debt relief as a form of income, and you may need to consider the tax implications.


Option #6: Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, you will have the opportunity to restructure your existing debts and pay them off according to a court-approved repayment plan. This will allow you to essentially renegotiate the terms of your mortgage loan as you attempt to balance this payment with your other obligations. The upside is that your concerns regarding your mortgage loan will be fully resolved at the end of the pay period; there are drawbacks, however, including the fact that setting up a Chapter 13 is fairly complicated. Another caveat is that the maximum repayment period is 5 years.


Contact Financial Freedom Advocates for More Information

If you’d like to learn more, please reach out to Financial Freedom Advocates today by calling 786-668-6688.

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